The Top 1/10th of 1% Loves a Guaranteed Minimum Income: With One Caveat

It is widely assumed that the super-wealthy top 1/10th of 1% are against a guaranteed minimum income (GMI) (also known as guaranteed basic income or basic income guarantee) because this would somehow limit their wealth and power.

On the contrary–the top 1/10th of 1% are fine with a guaranteed minimum income for households, with one tiny caveat: as long as they don’t have to pay for it. But wait, you say: that’s the entire idea: tax the rich and redistribute the money to those below.

Ah, but you’re forgetting the magical power of central banks and treasuries of the world to create money out of thin air. As the top 1/10th of 1% understand, the GMI could be paid with freshly issued money–a method of funding that leaves the top 1/10th of 1% untouched beyond the taxes they already pay (substantial in many cases).

But wait, you say: printing and distributing helicopter money is highly inflationary. (Helicopter money refers to former Fed chairman Ben Bernanke’s famous claim that deflation could be reversed by dropping money from helicopters.)

Not only is printing money inflationary, it soon burdens the nation with crushing debts. So goes the conventional line of thinking: printing money is inflationary and borrowing money by selling bonds leads to crushing interest payments on the ever-rising debt.

But what if the conventional thinking is wrong? Consider the following thought experiment:

1. The central bank pushes interest rates to near-zero as a permanent policy.

2. The government funds a guaranteed minimum income (GMI) by selling $1 trillion in freshly issued bonds every year.

3. The central bank buys the $1 trillion in freshly issued bonds with $1 trillion in freshly issued money. This is known as monetizing the debt.

4. Five years later, the government declares a debt jubilee and voids the $5 trillion in bonds. In effect, the government defaults on the bonds.

5. The central bank writes the $5 trillion in bonds off its balance sheet. In essence, the government and central bank balance sheets return to square one: the $5 trillion was paid out to millions of households in GMI payments, The government is not bankrupt and neither is the central bank. the writedown has no impact on the bank’s other assets nor on the government’s ability to sell more bonds to the central bank.

As for inflation: the $5 trillion in new money simply offset the massive deflationary forces of technology and global competition. If you doubt this could work in the real world, then please explain how Japan has been able to run enormous government deficits that are essentially funded by the Bank of Japan in precisely the fashion described above for 20 years with near-zero inflation and no reduction in state finances, financial stability or the central bank’s ability to create new money at will.

Why couldn’t the government of Japan void the bonds held by the Bank of Japan and clear the balance sheets of both entities? The central bank certainly doesn’t need the interest income to survive; it can print however much money it wants.

The structural forces of deflation in Japan’s economy have simply been stalled by the flood of deficit spending/new money. It turns out inflation is not the issue when labor costs are stagnant and the structural forces of technology and global competition keep pushing prices lower.

Stagnation/recession is also deflationary.

For all these reasons, I expect various forms of guaranteed minimum income to become accepted policy, but they won’t be paid for with taxes–they’ll be paid for with freshly issued fiat currency. To the astonishment of those basing their projections on the 1970s or other periods of inflation, printing and distributing money directly to households will not be as inflationary as anticipated because many of the primary global trends are massively deflationary: overcapacity, stagnation, global wage arbitrage, declining costs for technology, robotics and software, etc.

You print $5 trillion in bonds, I buy them with $5 trillion in new money, you default and I write off the asset of the $5 trillion in bonds. Rinse and repeat. The money was distributed to households who spent it in the real economy, supporting the enterprises owned by the top 1/10th of 1%.

Why wouldn’t the top 1/10th of 1% love a central bank-funded guaranteed minimum income? The program puts money in the hands of consumers who lack paid work, and a percentage of their helicopter money consumption flows to the top 1/10th of 1%. It’s a sweet deal for those receiving the GMI and those who own the assets and enterprises.

The last thing the top 1/10th of 1% wants is a desperate, politically charged underclass with no money to buy the goods and services that generate the income of the top 1/10th of 1%. The best way to keep the underclasses passive and powerless while insuring they have enough money to continue consuming is to arrange for the central bank to issue them money in the form of a popularly acclaimed guaranteed minimum income.

This sounds like Ellen Brown, Smith. An attribution is called for. If you’d like to consider a workable scheme that entitles the citizenry as the elite itself is entitled, read HR2990, the NEED ACT, introduced in the last congress by Dennis Kucinich. Are you trying to give the impression you thought this up all by yourself?

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